Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why The US Should Introduce VAT And Carbon Taxes Instead

Politics / Taxes Mar 23, 2017 - 01:20 PM GMT

By: John_Mauldin

Politics

BY JOHN MAULDIN : Economists of pretty much every stripe will agree that a consumption tax has fewer negative effects than an income tax does. That’s because incentives matter.

If you want more of something, then tax it less; if you want less of something, tax it more. It’s about that simple.


If you want more income and jobs, tax them less. So if you can substitute a consumption tax for an income tax (even if the two generate the same revenue), the incentive structure you create is superior under the consumption tax regime.

If we want to avoid a recession and really boost the economy and jobs, then we need to get “medieval” on income taxes. Don’t take a scalpel to them. Bring out the axes and chainsaws.

Why “A Better Way” Won’t Work

The House GOP’s “A Better Way” proposal creates a border adjustment tax in order to reduce income taxes. The problem is that the reductions, while significant, still just amount to tinkering around the edges. I wrote extensively about the BAT in Part Two of my series on tax reform in Thoughts from the Frontline (subscribe here for free).

The top rate is still 33%, although the pass-through business tax rate is reduced to 25%, which starts to become a significant tax cut for small businesses.

And while that will help, I don’t think it is the jumpstart to the economy that they think it will be.

Ways and Means Chairman Brady was bold enough to introduce the concept of a consumption tax. So, with consumption taxes on the table, let’s look at alternatives.

There are two more significant options for creating a consumption tax.

The Time-Tested Value-Added Tax (VAT)

One is a value-added tax, or VAT, which is a great deal more difficult to avoid paying by going to the black market.

Most of the world uses a VAT as a main tax system, including our large, industrialized peers. A VAT is not a great deal more complicated than the sales tax that many states now impose.

The difference is that it applies at every level of production, not just to final consumers. It is a well-tested option and generates abundant revenue with minimal side effects.

The VAT is a system that the rest of the world developed at their own risk. In other words, they worked out the bugs, yielding a proven, well-defined methodology that the US can easily adapt with very predictable results.

The other thing about a VAT is that you can take it off at the border for exports. That gives it the same positive feature that the BAT has, just without picking winners and losers.

Every business is treated the same in terms of the corporate tax they pay. It just makes us far more competitive as an exporting powerhouse, which translates into jobs.

You want real tax heresy?

A Carbon Tax

Why would I propose such a radical thing? Let me hasten to assure you that I think the carbon tax would have absolutely no effect on climate change. But it would be an excellent form of consumption tax.

And would it reduce the use of petroleum products over time? Sure. Would it result in a somewhat cleaner environment? Absolutely, and I’m all for that.

But essentially, a carbon tax is just another form of a consumption tax.

A $15 per ton of CO2 tax should generate about $80 billion per year of revenue. Raise it by $10–$12 per year and after 10 years you’re generating roughly $400 billion in revenue.

The first level adds about $0.13 to a gallon of gas. In my SUV that’s not inconsiderable on an annual basis, but the Europeans have shown us that they can live with 15 times the taxes on gas that we live with.

In Germany, they pay about $5 per gallon just in taxes (give or take).

Consumption Taxes Are Probably the Only Way Out

The point is that a combination of consumption taxes could allow a radical reduction in—or even the elimination of—income taxes and a far lower corporate income tax.

That would give a real boost overall to the economy. Of course, every combination requires trade-offs, but that’s what makes the approach possible and workable.

Grab the Exclusive Special Report, The Return of Inflation: How to Play the Bond Bear Market, from a Former Lehman Brothers Trader

Don’t miss out on this opportunity to cash in on the coming inflation.

Jared Dillian, the former head of Lehman Brothers’ ETF trading desk, reveals why inflationary price increases could be much higher than 1% or 2% and how you can position yourself for big profits as the bond market falls.

Download the special report now. 

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in